New York AG Accuses Exxon of Misleading Investors About Climate Change Risk

The New York State Common Retirement Fund and the New York State Teachers Retirement System hold Exxon shares with a combined value of approximately $1.5 billion, and a lawsuit asks for damages, a disgorgement of all monies obtained in connection with the alleged fraud, and restitution.

New York Attorney General Barbara D. Underwood filed a lawsuit against Exxon Mobil Corporation, alleging that the company misled investors regarding the risk that climate change regulations posed to its business.

A statement on Exxon’s website says, “The company looks forward to refuting these claims as soon as possible and getting this meritless civil lawsuit dismissed.” It adds that, “There is no evidence to support these allegations.”

The Attorney General’s complaint alleges that Exxon told investors that it accounted for the risk of governmental regulation of climate change by applying a “proxy cost” of carbon. A proxy cost serves as a stand-in for the likely effects of expected future events; in this case, the effects of the increasingly stringent climate change regulations that Exxon has publicly stated it expects governments throughout the world to impose and steadily increase over the course of several decades. As the complaint alleges, Exxon told its investors that it used that proxy cost in its investment decisions, corporate planning, estimations of company oil and gas reserves, evaluations of whether its long-term assets remain viable, and estimations of future demand for oil and gas.

Yet, contrary to those representations, the complaint alleges that Exxon frequently did not apply the proxy costs as represented in its business activities. Instead, in many cases Exxon applied much lower proxy costs or no proxy cost at all.

A statement by Underwood’s office says Exxon marketed the company as a secure long-term investment and courted long-term investors such as institutional shareholders, life insurance companies, and pension funds. As an example, it states, the New York State Common Retirement Fund (CRF) and the New York State Teachers Retirement System hold Exxon shares with a combined value of approximately $1.5 billion. “These investors depend on companies to provide complete, accurate information about the value of their assets to make informed investment decisions. In fact, over the course of the past decade, Exxon institutional shareholders repeatedly sought more information and disclosure regarding the risk the company faced due to climate change regulations,” Underwood says.

Underwood claims the impact of Exxon’s alleged fraud on the company’s value is significant in scale and scope. Among other things:

For 14 of Exxon’s oil sands projects in Alberta, Canada, Exxon’s failure to apply its publicly represented proxy costs resulted in undercounting of projected greenhouse-gas related expenses by more than $25 billion over the projected lifetime of the projects.

Exxon undercounted projected greenhouse gas-related costs by as much as 94%—equal to about $11 billion—in an economic forecast for its Kearl oil sands asset in Alberta.

Exxon failed to apply the proxy costs it represented to the public in estimating company reserves at Cold Lake, a major oil sands asset in Alberta, resulting in an overestimation of its projected economic life by 28 years, and an overestimation of company reserves volumes by more than 300 million oil-equivalent barrels, representing billions of dollars of revenues.

The lawsuit seeks an order prohibiting Exxon from continuing to misrepresent its practices in this area, and requiring it to correct its past misrepresentations. The suit also asks the court to award damages, a disgorgement of all monies obtained in connection with the alleged fraud, and restitution. Additionally, the complaint requests the court to direct a comprehensive review of Exxon’s failure to apply a proxy cost consistent with its representations, and the economic and financial consequences of that failure.